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Lev, Tax Advisor

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Experience: Taxes, Immigration, Labor Relations

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A utility company has taken an easement from a ranch through

Resolved Question:

A utility company has taken an easement from a ranch through their land for power lines.The rancher was paid a sum of money for the easement. How is it taxed--ordinary income or long term capital gain. How do you determine any basis.

A part of the payment might be a compensation for damages to the property. That amount is not taxable but the basis of the property should be reduced by that amount. If the basis is zero - the compensation will be treated as a capital gain.

Because that amount is reported to the IRS - you may not simply ignore it - to avoid IRS letters - you might want to attach a note to your taxreturn with explanations.